North Dakota Bankruptcy Exemptions and Law
The decision to file for bankruptcy is often a difficult one. In today's society, people fear that filing for bankruptcy will be viewed as a sign of failure by their friends, families, and business associates. However, filing for bankruptcy is often the only way forward if you have gotten into debt over your head and see no route to paying it off.
Bankruptcy will stop the harassing phone calls from creditors. It will stop lenders from foreclosing on your home. It will give you time to resolve your financial problems in an organized manner. You may lose some of your assets during bankruptcy, but you should be nearly debt free and ready to move on with your life at the end of the case.
Bankruptcy proceedings are conducted in federal courts under the U.S. Bankruptcy Code, but the code allows states to enact their own rules on what property residents can protect from creditors. The North Dakota legislature has taken advantage of the opportunity to establish its own rules on exempt property, which is the property that cannot be taken away from you in bankruptcy.
If you file for bankruptcy in North Dakota you must use the state exemptions (more about these exemptions below). Some states allow you to choose between their state law exemptions and the federal exemptions in the Bankruptcy Code, but North Dakota is not one of them.
Chapter 7 vs. Chapter 13 Bankruptcy
Before we get into a discussion of North Dakota's exemptions, it is important that you understand the two types of personal bankruptcy and the role exemptions play in the bankruptcy process.
Chapter 7 bankruptcy is often called a “liquidation bankruptcy" because when you file under this chapter, the bankruptcy trustee can take any property that is not protected by an exemption and sell it to repay your creditors. In return for giving up all of your non-exempt property, you will exit Chapter 7 free from nearly all of your debts. However, the benefits of Chapter 7 are only available to those whose income falls below a specified level.
Chapter 13 bankruptcy is available to people who have a steady income. It lets them restructure their debts to pay them off over three to five years. These payments are made under a court-approved plan that will sometimes eliminate part of your debt. Another benefit of filing under Chapter 13 is that if you own a home you can often keep it.
The Automatic Stay Protects You From Creditors
One of the most powerful tools you will have at your disposal in any bankruptcy case is the automatic stay the court will grant you when you file. Regardless of whether you file under Chapter 7 or 13, the stay will protect you from creditor collection actions, including harassing phone calls, foreclosure, and lawsuits.
The purpose of the stay is to give you the breathing room you need to resolve your debt problems in an orderly manner. If one of your creditors violates the stay and contacts you in an attempt to collect its debt, the court may make the creditor pay damages, including attorneys' fees.
Secured vs. Unsecured Debt
The most important factor in determining how your debt will be treated in bankruptcy will be whether it is classified as secured or unsecured. The designation matters because the two types of debt are treated differently in bankruptcy and may be a factor in which type of bankruptcy you choose.
You have unsecured debt when a creditor has no right to repossess your property if you fail to pay. Nearly everyone who files for bankruptcy has at least some unsecured debt. The most common types of unsecured debt in bankruptcy cases are credit card debt, court judgments, and medical debt.
Creditors that have no right to seize your property for unpaid debt have the least amount of leverage in bankruptcy. Therefore unsecured debt is the most likely to be eliminated in a Chapter 7 or 13 case. Nevertheless, there are some priority unsecured debts that cannot be discharged, like child and spousal support.
Secured creditors have the right to repossess your property for failure to pay. This type of debt is most often created when you take out a loan to purchase something expensive — like a house, boat, or car — and your lender retains the right to seize the purchased property if you fail to repay the loan. Home mortgages and car loans are among the most common types of secured debt.
Unfortunately, your secured creditors retain the right to repossess your property after you have declared bankruptcy. The automatic stay may postpone any seizure, but your creditors can ask the court to lift the stay so they can repossess their collateral. Ultimately, that means you will either need to return the property or work out a payment plan with the creditor.
How Secured and Unsecured Debt are Treated in Bankruptcy
In a Chapter 7 bankruptcy case, you can often discharge almost all of your unsecured debt after paying creditors a small fraction of what you owe, or nothing at all. Secured creditors are in a different position and you will need to do one of the following in a Chapter 7 case:
- Return the property to your creditor. You will lose the property if you choose this option, but you will no longer be required to make payments in most cases.
- Keep the property and continue making payments. If the North Dakota exemption covers the equity you have in the item, you can sometimes keep it and work out a payment agreement with your creditors.
- Purchase the property by repaying the loan balance. This rarely happens in Chapter 7 cases because most people filing under that chapter lack the assets to make such purchases.
Your secured property usually fares better in a Chapter 13 case where you submit a plan to repay your secured creditors over three to five years. The court must approve the plan, but it can force your creditors to restructure your debt or forgive some of your outstanding balance. Your home mortgage is not included in the plan and you will need to continue making the required payments to the lender if you want to keep your home.
Unsecured Chapter 13 creditors generally receive more than they would in a Chapter 7 bankruptcy, but are rarely repaid the full amount they are due. This is because the plan will only pay your unsecured creditors with the disposable income left over after you pay your secured creditors. Additionally, any unpaid unsecured debt will be discharged at the conclusion of the plan.
Not everyone is eligible to file for bankruptcy. If you want to file under Chapter 7 you will need to show that your income is low enough to qualify. The Bankruptcy Court usually applies one of two means tests to determine Chapter 7 eligibility.
Under the first means test you will simply need to show that your household income is below the median for North Dakota households of a similar size. For example, in November 2020 U.S. Census data showed that the median income for a three-person North Dakota household was $89,584. So if you live in a three-person household with an income of less than $89,584, you would be eligible to file under Chapter 7.
Even if your household income is above North Dakota's median you may still be eligible to file under Chapter 7 based on a second test that is based on your disposable income. Under that test, you will calculate your disposable income by subtracting your anticipated monthly expenses from your expected monthly income over the next few years. If the result shows that you will have little to no disposable income most months, you can file under Chapter 7.
The main qualification for filing under Chapter 13 is a steady income. There is no means test involved. But it is possible to have too much debt to file under Chapter 13. You can only file if you have no more than $419,275 in unsecured debt or $1.26 million in secured debt.
North Dakota residents must use the state's bankruptcy exemptions if they file there. If you own property that falls within one of the exemptions, you can protect it from your creditors during bankruptcy and use it to restart your life when you leave bankruptcy.
When a married couple files for bankruptcy together in North Dakota, each spouse is sometimes allowed to claim a full exemption for themselves. This allows you to effectively double the amount of many exemptions if you file jointly. This does not apply to the homestead exemption.
North Dakota lets you exempt up to $100,000 of your equity in your home, mobile home, or house trailer. As noted above, this amount is not doubled for married couples.
Unlike many states, North Dakota does not provide a bankruptcy exemption for any portion of your wages.
Motor Vehicle Exemption
You can exempt up to $2,950 of the equity you have in a motor vehicle. If you are disabled and your vehicle was modified to accommodate your disability, the vehicle exemption rises to $32,000.
North Dakota has a wildcard exemption that lets a head of household exempt up to $7,500 of any property. If you are single and have no dependents, that amount drops to $3,750. Filers who do not claim the homestead exemption enjoy a $10,000 wildcard exemption.
Personal Property Exemptions
The following personal property is exempt:
- Up to $5,000 in clothing
- One year's provisions for your family, including food and fuel
- Health aids
- Family library, including schoolbooks and religious texts
- Up to 160 acres of crops if your primary residence sits on the property
- Family pictures
- A church pew or other seating in a house of worship
- Burial plots
Tools of the Trade Exemption
North Dakota provides an exemption of up to $1,500 for any tools or implements you use in your trade or profession.
Insurance Benefits Exemption
Most life insurance policies are exempt in North Dakota, as are old-age and survivor insurance benefits.
Pension and Retirement Exemption
North Dakota offers an exemption for up to $100,000 in each tax-exempt retirement account, up to a total of $200,000. But if you can prove you need more money for support, the court may allow you to keep more money. Most tax-exempt retirement accounts also benefit from federal law protections in bankruptcy.
Additionally, public employee benefits are exempt.
Public Benefit Exemptions
The following public benefits are exempt:
- Social Security
- Unemployment compensation
- Veterans' disability benefits
- Public assistance
- Workers' compensation
- Crime victims' compensation
- Reasonably necessary alimony, spousal support, and child support
- Fraternal benefit society benefits
- Personal injury recoveries of up to $18,450
- Payments for the wrongful death of a person upon whom you or your family depended
- Payments for loss of future earnings to the extent reasonably necessary for support
Anyone who files for bankruptcy in the U.S. must first complete a counseling course within 180 days of filing. The course will help you determine whether you really need to file for bankruptcy. If you are planning on filing under Chapter 13, you will often draft a repayment plan as part of the course.
If you are represented by an attorney, they will take care of the filing process for you. If you are filing without an attorney (known as “pro se" filing), you will start the process by downloading the correct forms for North Dakota's bankruptcy court. The instructions for filing the forms will let you know which additional documents and forms must accompany your bankruptcy filing.
As of 2021, the filing fee for a Chapter 7 case is $338, while the fee for a Chapter 13 case is $313. That may seem like a lot of money if you are struggling financially, but you can ask to pay in installments. Additionally, if you earn less than 150% of the poverty line, you can ask the court to waive the filing fee.
You are not required to use an attorney when you file, but it is usually recommended that you seek out one to represent you. While each person filing for bankruptcy is facing a unique financial situation and the fees may vary depending on where you live, most North Dakota lawyers will charge between $800 and $1,500 for a straightforward Chapter 7 case. They will usually charge more for a Chapter 13 case and the attorneys' fees for complex cases can top $5,000.
Need Help Filing for Bankruptcy in North Dakota?
While you can go it alone and file for bankruptcy on your own, hiring an experienced local attorney to represent you will spare you the time, energy, and stress involved in a pro se bankruptcy filing. Even a simple bankruptcy case involves filing complex documents and adhering to strict court deadlines. A major mistake can result in your case being dismissed, which means your creditors will be free to start harassing you again because you lose the benefit of the automatic stay.
A bankruptcy attorney will guide you through the bankruptcy process and strongly advocate on your behalf during court proceedings and while negotiating with your creditors. A skilled attorney will ensure the case causes a minimum of financial disruptions and that you protect as many of your assets as possible from creditors.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.
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